A PYMNTS Company

Bargaining Failures and Merger Policy

 |  August 3, 2015

Posted by Social Science Research Network

Bargaining Failures and Merger Policy Roberto Burguet (Instituto de Analisis Economico) & Ramon Caminal (Universitat Autonoma de Barcelona)

Abstract: We study approval rules in a model where horizontal merger proposals arise endogenously as the outcome of negotiations among the firms in the industry. We make two main points. First, relatively inefficient merger proposals succeed with positive probability. That is, the negotiation process may result in a particular merger agreement despite the existence of an alternative one that would generate higher profits and higher consumer surplus. Second, the antitrust authority should optimally commit to an approval rule that is more stringent for all mergers than the optimal ex post rule.